Yesterday the news broke that Charles River Laboratories (NYSE:CRL) is acquiring HemaCare (OTCMKTS:HEMA) for $25.40/share in cash. I bought my first shares at the end of March and the beginning of April in 2017 for an average price of $2.53/share, just low enough to make the stock officially my first ever “ten bagger”. With that kind of performance HemaCare was obviously a driving factor behind my portfolio’s performance for the last few years, even though I did end up selling some shares along the way.
While I can’t really complain that Charles River Laboratories is not paying enough when they are paying $380 million for a business that had $35 million in revenue (ttm) and net income of $6.9 million (ttm) I’m strangely enough a little bit disappointed. In the press release Charles River Laboratories notes that they expect HemaCare to contribute at least $50 million in revenue in 2020 and to grow revenues with at least 30% for 5 years after that. It’s tough to see how that would not work out more favorable for shareholders, but of course, that is only when they do manage to achieve those goals. That’s not certain, and being part of a larger organisation is perhaps part of what will make that growth possible. And before the first rumors about a potential sale surfaced the stock was trading around $16/share, so $25.40 is more than a fair premium.
For those readers that are looking at this as a merger arbitrage, I think it’s marginally attractive. With the stock currently trading at $25.10 the spread is just 1.2%, but the merger has already received shareholder approval and is expected to close early in the first quarter of 2020. I don’t think there is anything that could realistically derail this deal, so while the spread is thin I think it’s okay. There are certainly lots of deals with smaller spreads and more risk.
Author is long HemaCare